Tech stocks have taken a beating since late last year, as economic uncertainty has caused investors to reassess their priorities. As a result, many of the high-value stocks have crashed, regardless of their growth rates. Adding fuel to the fire was rising interest rates, 40-year high inflation and a prolonged recession.
These reasons are punished Nasdaq CompositeAs of this writing, the high from November 2021 — a decline of 20% or more would signal a bear market, sending it down about 23%. Some stocks listed on the historical index fell further.
It’s important for investors to remember that not all growth is created equal, which can lead to some compelling opportunities for long-term investors. Let’s take a look at two high-growth stocks that investors regret not buying on the dip.
One of the biggest threats to businesses these days are hacks, ransomware attacks and data breaches that frequently make headlines. As a result, companies can no longer skip cyber security to avoid becoming a member of this victim fraternity. It is there CrowdStrike (CRWD -4.71%) will come As a leading provider of endpoint security, CrowdStrike’s cloud-based system is designed to stop attacks at their source – endpoint devices.
The company’s versatile strategy uses a local “agent” to handle many simple tasks, while moving more sophisticated, data-driven issues into a risk graph for analysis and action. CrowdStrike has artificial intelligence at the core of its process, helping it stop the next attack faster. In fact, it analyzes trillions of high-value data points every week, allowing CrowdStrike to defuse breaches, often in minutes or seconds.
Business is booming. In the second quarter of fiscal 2023, ended July 31, revenue grew 58% year-over-year, while subscription revenue increased 60%. During the same period, annual recurring revenue increased by 59 percent. While the company is not yet profitable, strong cash flow from operations and free cash flow, both of which have roughly doubled year over year, suggest that profitability is only a matter of time.
CrowdStrike’s impressive financial results are fueled by equally compelling customer metrics. The company added 1,741 net new customers in the quarter, a 51% increase over the year, bringing the total to 19,686. It’s also expanding their engagement with CrowdStrike, with users using five or more, six or more, and seven or more modules growing to 59%, 36%, and 20%, respectively.
It should be noted that this impressive growth comes at a cost. CrowdStrike stock is currently trading at 13 times next year’s sales, the lowest in years. However, I’d argue the premium is worth it given the impressive earnings growth — even in an economic headwind.
Additionally, the company’s strong financial metrics and customer growth are the result of weakness in CrowdStrike’s stock price due to macroeconomic uncertainty — not the company’s performance. This also suggests that once the economy recovers, CrowdStrike stock may return with a vengeance.
The digital transformation is ongoing, and more companies than ever are dependent on cloud-based systems. That can be a double-edged sword, but downtime can also take a toll on employee productivity as it can result in lost customers. It is very important to investigate issues and raise red flags before these problems reach a serious level, and Datadog (Dog -5.37%) He is on the hunt.
The company’s integrated software monitors cloud systems, servers, databases, devices, services and applications using monitoring services and real-time analytics to not only identify problems but also prevent them from recurring. Datadog is very successful at what it does, it’s recognized. Gartner‘s Magic Quadrant for 2022, a leader in application performance monitoring and observability.
In the second quarter, Datadog posted 74% year-over-year revenue growth, accelerating from the previous quarter’s 67% growth. The company is not yet profitable, but generates strong and growing free cash flow. That means losses are the result of non-cash items including depreciation and profits are coming in.
There is another. Datadog’s strong financial performance is complemented by equally impressive customer metrics. Their customer base grew 29 percent year-over-year, with the number of enterprise customers growing rapidly, with $100,000 in annual recurring revenue growing 54 percent. In addition, existing customers continue to spend more, as seen in each quarter of the past five years, with Datadog’s dollar-based net revenue retention rate of 130% or more.
The digital transformation and move to cloud computing will undoubtedly help fuel Datadog’s growth, but just like the previous example, this strong growth comes with a big price tag. Datadog will sell for 13 times next year’s sales. While that’s Datadog’s lowest valuation in years, it’s still expensive by traditional standards. However, in terms of earnings growth, if it is above average, it should be valued above average.
Given its strong financial performance and rapidly growing customer metrics, this is another top investors will regret not buying before it starts to climb.